The Specified Banknotes withdrawal, better known as demonetization in our parlance, has been the buzzword for over two months now. It has affected sentiments across Industry and the auto sector has not been insulated from this action taken by the government. We at Indianbluebook.com, India’s most trusted vehicle pricing guide, have attempted to understand the impact of this radical step on the used car market. In this study we provide insight on key areas of impact beyond just vehicle pricing. We also look at the impact of demonetization on used car demand and how the industry is expected to recover and what structural shifts we expect over the next twelve months. The used car market is complicated with various participants trading over 3.3 cars annually. The industry is largely unorganized with over 2.8 million cars transacted through semi-organized dealers and brokers or directly between customers. The used car market plays a critical role in the new car industry by enabling over 900,000 trade-ins (exchanged vehicles) at new car dealerships. These trade-ins are essential for new car sales.
Used car market structure in India Understanding the structure of India’s used car market
The used car market is complicated with various participants trading over 3.3 cars annually. The industry is largely unorganized with over 2.8 million cars transacted through semi-organized dealers and brokers or directly between customers. The used car market plays a critical role in the new car industry by enabling over 900,000 trade-ins (exchanged vehicles) at new car dealerships. These trade-ins are essential for new car sales.
Finance penetration in the used car Industry at 15% significantly lags new car finance penetration, which is currently at 65%. 85% of used vehicles therefore either are purchased with cash or other informal borrowing. Finance penetration in non-metros is even lower. The cash crunch induced by demonetization has led to customers postponing their decision to buy used cars, leading to a fall in volume in November. December has shown some recovery from November. North and Eastern regions of India were more severely
How did the liquidity crunch affect used car demand?
IndianBlueBookIn one of the largest exercises conducted in the country by far, the team at IndianBlueBook reached out to more than 38,000 in-market customers to understand the impact of this economic discontinuity on the consumer purchase cycle and the resulting pent up demand. Data shows a sharp decline of almost 13% in customers intending to complete the car purchase cycle within 30 days as compared to the period from Apr-Oct, 2016. Our analysis shows that customers have postponed the decision to buy. They have other immediate priori-ties to deal with, a car purchase being somewhat discretionary.However, it is important to understand that customers have not abandoned the decision to purchase a car altogether, but it is rather a case of postponement. With fundamental growth drivers of the used car market remaining intact, this pent up demand will get serviced when consumer purchase cycles return in the coming months. We expect further material recovery of volume in January.
